U-turn needed to reverse UK's confidence crash, economists say

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U-turn needed to reverse UK's confidence crash, economists say

Reversing the UK's confidence crash requires policy U-turn: economists Commuters walk across the London Bridge towards the financial district, London Bridge to the financial district, reflected in windows of an office.

LONDON Reuters - Rock bottom investor confidence in Britain will only recover with a U-turn of the economic plan announced last week by finance minister Kwasi Kwarteng, U.S. economist Larry Summers and J.P. Morgan.

The pound touched an all-time low of $1.0327 on Monday as British government bonds sold off at a ferocious pace and some mortgage providers, unable to price loans, suspended sales to new customers.

Summers said on Tuesday that the first step in regaining credibility is not saying incredible things.

Summers pointed out that the surge in interest rates of long-dated British debt is a hallmark of situations where credibility has been lost. This happens most often in developing countries, but happened with early Mitterrand before a U-turn, in the late Carter Administration before Volcker and with Lafontaine in Germany. On Monday, the Bank of England and Treasury released statements in a hope of reassuring investors, with the central bank saying it would not hesitate to raise interest rates if needed.

Kwarteng said he'd set out medium-term debt-cutting plans on November 23, along with forecasts from the Office for Budget Responsibility showing the full scale of government borrowing.

Economist Allan Monks from America's largest bank J.P. Morgan said the intervention was measured, but there is still no clear indication that the government's fiscal strategy is being reversed or reconsidered, Monks said.

This is going to have to happen before November in order to avoid a worse outcome for the economy.